December 11, 2008

Psychology of Bad Times Fueling Consumer Cutbacks

Section 1: The National Economy

Americans remain extremely downbeat about national economic conditions. More than nine-in-ten (92%) say the economy is in only fair (33%) or poor (59%) shape, while just 7% offer positive views. Assessments of the national economy have been stable over the past two months and are somewhat more negative than they were during the recession of the early 1990s. In August 1993, about nine-in-ten Americans (89%) said the economy was in only fair or poor shape and 10% said it was in excellent or good shape.

A growing percentage of Americans now describe current economic conditions as a recession. More than six-in-ten Americans (64%) say the U.S. economy is in a recession and an additional 20% say it is in a depression, compared with 58% and 19%, respectively, in late October. The view that the country is facing a recession has become more widespread across most demographic groups.

Democrats continue to offer more negative economic ratings than do Republicans and independents, but overwhelming majorities across partisan groups express dissatisfaction with the economy; 96% of Democrats say the economy is in only fair or poor shape, compared with 88% of Republicans and 91% of independents. Democrats, Republicans and independents are about equally as likely to describe current economic conditions as a recession (65%, 66% and 64%, respectively). Nearly a quarter of Democrats (23%) say the country is in a depression; 19% of independents and just 14% of Republicans share that view.

Democrats More Bullish

Most Americans think economic conditions will be either the same (36%) or worse (17%) a year from now. Still, a substantial minority (43%) is optimistic that things will be better in a year, virtually unchanged from when Pew last asked the question in early October (46%).

Views about the future of the economy do not vary significantly across demographic groups, including across income categories. Those with annual family incomes under $30,000 are about as likely as those with incomes of $100,000 or more to say the economy will be better in a year (45% and 46%, respectively).

There are, however, partisan differences in economic outlook. Democrats are considerably more optimistic about the future of the national economy than are Republicans and independents. Fully half of Democrats expect conditions to be better in a year, while about the same proportion (47%) thinks things will be worse or about the same as they are now. In contrast, nearly six-in-ten Republicans (59%) and 56% of independents say the economy will be worse or about the same in a year.

But Even the Optimists Are Guarded

While a sizable minority of Americans expect overall national economic conditions to improve over the next year, people are far less upbeat when asked about improvement in specific areas of the economy. Very few see unemployment, inflation or taxes actually decreasing in the coming year, and by nearly two-to-one most say the problems facing banks and financial institutions will only get worse.

Even those who are optimistic about overall economic prospects are guarded when asked about these specific issues. Nearly half (49%) of those who say the economy will be better a year from now believe the problems with financial institutions will get worse in the future; 47% say the worst is behind us. Those who say the economy will be the same or get worse a year from now overwhelmingly (74%) believe the problems of financial institutions will worsen.

Most people who think the economy will be better a year from now nonetheless say that unemployment will rise over the next 12 months; 53% say this, while just 23% of economic optimists say that unemployment will decrease; 21% say it will stay about the same. Among those who believe the overall economy will get worse in the next year, 72% say unemployment will rise.

Increase in Joblessness Predicted

In this regard, the belief that unemployment will rise over the next year is shared widely across demographic, class and income categories. However, well-educated people and those with higher incomes are more likely than those with less education and lower incomes to say that unemployment will increase.

Nearly seven-in-ten college graduates (69%) express this view, compared with 59% of those with no more than a high school education. Among those with household incomes of $75,000 or more, nearly three-quarters (73%) say unemployment rates will rise in the near future. In contrast, 54% of those earning less than $30,000 a year, while almost a quarter (24%) of this group say unemployment will decrease.

Democrats are slightly more optimistic than Republicans or independents about unemployment in the future (23% say it will decrease, compared to just 14% of Republicans and independents).

Taxes, Inflation, Interest Rates

Most Americans (55%) believe that taxes will increase over the next year, while 47% say they expect inflation to rise. About a third (31%) says they expect interest rates to increase.

A large majority of Republicans (71%) say they expect taxes to go up over the next year. In contrast, 57% of independents and just 41% of Democrats expect taxes to increase.

Republicans also are more pessimistic about inflation than Democrats. More than half of Republicans (54%) say they expect inflation to increase, compared with 41% of Democrats. A slim majority (52%) of self-described working-class Americans say inflation is on the rise. By contrast, just 43% of those in the professional/business class think inflation will increase.

Jobs More Difficult to Find

The percentage of Americans who say jobs are difficult to find in their area is now greater than at any point since 2001, when Pew first asked this question. Nearly three-quarters of Americans (73%) say jobs are hard to find where they live. This is significantly greater than the previous high in October 2003 (66%). Views of the labor market are not as pessimistic as they were in January 1992 when, according to a U.S. News and World Report poll, 79% of the public reported that jobs were difficult to find in their area.

Views of the job market have worsened significantly across all income categories, except among those making $100,000 a year or more. In lower income categories, there have been 10-point increases or more in the percentages saying jobs are scarce locally.

The education gap in perceptions of the local job market has widened since October. While about two-thirds of college graduates (66%) say that jobs are difficult to find, 79% of those with no more than a high school education say the same.

Republicans’ views of the job market in their local community have grown substantially more negative since October. Two-thirds of Republicans (66%) say that jobs are difficult to find, up from 53% two months ago. Nonetheless, more Democrats (77%) and independents (75%) continue to say that jobs are scarce locally, and these percentages also have increased since October.

Personal experience with unemployment is associated with views of job availability; 82% of those in households where someone has looked for work in the prior year say jobs are hard to find, compared with 68% of those in households that haven’t experienced recent unemployment.

Unemployment Hits Home

More than a third (35%) of Americans say that a member of their household has been without a job and looking for work over the past twelve months. This is an increase of seven percentage points since February of this year.

The increase has been most pronounced among those making between $50,000 and $100,000 a year.
Nonetheless, people with incomes of less than $30,000 a year remain the most likely to say that someone in their household has been unemployed over the past 12 months.

A majority of Americans younger than 30 (55%) have experienced household unemployment in the past year, compared to significantly lower rates among oth
er age groups. Household unemployment among those with college degrees (25%) continues to be substantially lower than unemployment in households of those who have not attended college (39%).

Among those who are currently employed, a majority (56%) now says jobs in their line of work are hard to come by in their area, a 10-point increase since February. Working people with annual household incomes of less than $50,000 are significantly more likely than those with higher household incomes to say jobs in their particular field of work are difficult to find (63% compared with 52% of those with incomes of $50,000 or more).

While most working Americans continue to characterize the financial health of their employers as excellent or good (69%), the proportion saying that the company or organization they work for is in only fair or poor financial shape has continued to rise over the course of the year. Currently, 35% describe their employer’s financial situation in this way, compared with 27% in February and 30% in October.

Individuals with lower household incomes are the most likely to provide negative ratings of their employer’s financial condition (43% of those with annual incomes of less than $50,000 say this, compared with 30% of those with family incomes of $50,000 or more).

Real Estate Slump

Americans have grown markedly more negative in evaluations of their local real estate markets since earlier this year. Fully 67% say that home prices in their area have declined a little (33%) or a lot (34%). In early October, 54% said prices had fallen a little (29%) or a lot (25%).

Since October, more people across all regions report that the values of their homes have gone down, although the increase has been somewhat smaller in the West. There continues to be a wide gap in the perceptions of the local home market between affluent and low-income Americans. More than eight-in-ten (82%) of those with incomes of $100,000 or more say home prices have declined, compared with 52% of those with incomes of less than $30,000.